It’s no secret that going abroad to pursue your studies is expensive. The tution fees of top US universities is enough to make any Indian sweat. Add on the non-favourable currency conversion rate, cost of housing, travel, day to day expenses, and now you’ve got a bill on your hand that’s big enough to make you panic.
An obvious solution everyone would instantly tell you is to get an education loan. And honestly, getting a loan these days is not that difficult. Make a few google searches and your mail inbox and call log will be flooded with bankers telling you the next steps.
What’s difficult is putting up collateral to get those loans. None of us want to take a loan against assets that our family worked all their lives to acquire.
But what if there was an alternative?
Well, in this blog, we wanted to tell you about an scheme that most financial institutions don’t want you to know.
And that is knowing how to get an education loan without putting up any collateral. Read this blog to find out how.
Why Do Banks Require Collateral for an Education Loan?
When you take out any loan, you have to pledge an asset against the borrowed amount. If you fail to make the payment, this asset would be seized by the issuing authority. This asset is called a collateral.
But when it comes to education loans, you have two options:
- Secured Loans - This where the borrower provides collateral to take a loan against it.
- Unsecured Loans - As the name suggests, such loans do not require the borrower to secure the amount borrowed with any sort of collateral.
Earlier banks used to give loans without a collateral upto the amount of INR 7.5 Lakhs. But in order to keep up with the rising cost of tution fees, this limit has been increased to 40 Lakhs by various institutions.
Where Can I Get Education Loans Without Collateral?
Here are some of the unsecured education loans options that you can look into to fund your studies abroad.
What are the eligibility criteria for an abroad education loan without collateral?
Take a look at the list below to see what you need to take care of in order to be eligible for an unsecured loan.
Academic Grading: Your Marks as a Percentage
Banks establish stricter demands for applicants' academic performance to meet the requirements for qualifying for unsecured education loans. Majority of them have 60% grades as their threshold.
Academic Profile Backlog
If you have more than 3 non cleared backlogs, then you won’t be eligible to get a collateral free education loan.
When it comes to unsecured loans, the majority of lenders concentrate on well-known study abroad locations like the US, UK, Canada, Australia, Ireland, and Germany but they are wary of lesser-known places like China and Ukraine.
A Gap in you Education
Any break in your academic performance or in the time since you graduated must be explained in a letter to the bank in order to demonstrate your eligibility for unsecure student loans.
Lenders favour STEM undergraduate and graduate programmes over programmes in public policy or aviation. Except for undergraduate diploma and certificate programmes, government banks accept all types of degrees, including post-graduate, Ph.D., undergraduate, and undergraduate courses.
Income and CIBIL Score of the financial co-applicant
Lenders favor processing unsecured loans for students whose financial co-applicant has enough resources to pay off the debt if the student fails to do so. In India, you must have a CIBIL score of at least 650 to be eligible.
The Institute Chosen for Studies
Since banks are typically risk averse, students who have received official admission offers from major universities throughout the globe are more likely to secure well-paying employment.
Documents Required for Education Loan Without Collateral for Abroad Studies
If you complete your documentation properly, you can cover the cost of your flight, tuition, living expenses, and study materials by the education loans itself. Here’s a non-exhuastive list of documents required to get an unsecured loan:
- The loan application form
- Birth Certificate
- Bank records from the previous six months
- Residential Proof
- PAN Card
- KYC records
- Two pictures in passport-size of the applicant and co-applicants
- Optional: Guarantor Form
- Copy of Institute/University Offer Letter with Fee Schedule
- Certificates of completion for degree programmes, admission exams such the TOEFL and IETLS, and S.S.C., H.S.C., etc.
- Proof of the guarantor's or co-income applicant's (such as Form 16)
Can Your Loan Application Get Rejected?
But even if you complete all the pre-requisites, there is a chance that the loan application you have submitted to your chosed institution gets rejected.
Here’s a list of situations why that can happen:
- Program Preference: Banks usually prefer to provide unsecured loans to undergraduate programs because of shorter course length. So unless your financial co-applicant (your family) have strong revenue stream, your application can denbied if you’re applying for an undergraduate degree.
- Age of the applicant and co-applicant: NBFCs prefer not provide loans to students who are older than 27. Regarding the co-applicant, NBFCs won't accept the profile if the co-applicant is retired (whether or not a pensioner) or is set to retire in three years.
- FOIR: Private banks adhere to the FOIR standard, often known as the fixed obligation to income ratio. If your co-applicant does not meet the FOIR norm, private banks will not approve the loan; in other words, the co-responsibilities, applicant's or EMIs, are greater than what the borrower is able to pay.
We hope this blog served as a valuable resource to further your dreams of studying in US. If it did, then do subscribe to our newsletter and get more such nuggets of information delivered straight to your inbox.